calcutta high court

Calcutta High Court: In a case involving a protracted legal battle over the estate of Mrs. Priyamvada Devi Birla, encompassing challenges to her Will, disputes over the appointment of Executors and Administrators, and conflicting decisions regarding business matters and director appointments, a division bench comprising of T.S. Sivagnanam,* CJ., and Hiranmay Bhattacharyya,* J., held that the testamentary court has the authority to decide the prima facie extent of the deceased testator/testatrix’s estate, grant third-party injunctions in exceptional cases, and allow the Administrator Pendente Lite (APL) to influence decisions concerning the estate, subject to specific conditions and approval processes. The case was disposed of with the hope that the letters of administration suit would be expedited without unnecessary adjournments.

“There cannot be any universal or dynamic injunction or direction affecting the future course of action of the companies from the testamentary court, simply because the testatrix could not herself had taken any such action in law.”

Factual Matrix

In the instant matter, one Mrs. Priyamvada Devi Birla died on 03-07-2004, leaving a registered Will dated 18-04-1999, bequeathing her entire estate to Mr. R.S. Lodha, her trusted advisor. Six members of various factions of the Birla families, from whom she and her late husband were separated, contested the Will, but the Calcutta High Court, including the Supreme Court, dismissed their challenges and imposed fines for frivolous litigation. After Mrs. Birla’s demise, the Birla family targeted Mr. R.S. Lodha as the Executor. A Single Judge’s unfavorable verdict was overturned by the Division Bench, and the challenges against Mr. R.S. Lodha as Executor abated after his death on 03-10-2008.

Subsequent Litigation

Fifteen years of litigation ensued, initially concerning the appointment of Administrators. The Division Bench made several appointments, with the last being Justice Mohit S Shah (Retd.) on 10-04-2019.

Justice Mohit S Shah (Retd.) and the Birlas’ nominee administrator started making business decisions for operating companies, including instructing shareholders on director appointments. Justice Mohit S Shah, along with a Birla nominee administrator, issued orders influencing business decisions in operating companies, leading to disputes between the Lodhas and the Birlas.

Legal Dispute

The administrators directed shareholders, including third-party entities, to vote against the re-appointment of Mr. H.V. Lodha as Director, based on a claimed influence by Mrs. Priyamvada Devi Birla. Operating companies ignored these directions, leading to conflicting applications by the Birlas for implementation and the Lodhas for setting aside.

Vide order dated 18-09-2020, the single-judge bench of this Court upheld the administrator’s authority restraining Mr. H.V. Lodha from holding any office. However, a Division Bench on 01-10-2020 clarified that administrators could only control the shares of the Estate and nothing more. Mr. H.V. Lodha continued as Director of the Operating Companies.

Petitions alleging contempt against Mr. H.V. Lodha were dismissed on 22-04-2021 by the Division Bench, and the Supreme Court upheld the Division Bench’s decision on 12-072021 and 04-02-2022, affirming no violation by Mr. H.V. Lodha.

In the instant matter, the Division Bench is delivering its final judgment, establishing the legal status and rights of Mr. H.V. Lodha in the operating companies, bringing an end to this complex and protracted legal saga.

Appellant’s Contentions

The appellant contended that the probate court’s jurisdiction is strictly limited to considering the genuineness of the will and cited Krishna Kumar Birla v. Rajendra Singh Lodha, (2008) 4 SCC 300. The appellant contended that the Probate Court exceeded its jurisdiction by restricting shareholding, property, or management rights in entities, including trusts and societies, during the suit’s pendency. The appellant emphasised that only those with a caveatable interest can be added as parties to testamentary proceedings, and third-party entities lack such interest. The appellant asserted that the Probate Court cannot pierce the corporate veil of any entity, and such an action can only occur in exceptional circumstances. It was emphasised that the impugned order does not pierce the corporate veil but rather upholds the corporate structure.

The appellant disputed the impugned order’s acceptance of the doctrine of “persons acting in concert” and asserted that the estate does not exercise control over the listed companies in the MP Birla Group. The appellant challenged the notion that trusts and societies, as part of the promoter group, should be considered as part of the estate, arguing that they are distinct legal entities independently managed and controlled. The appellant contended that the concepts of a single directing mind and will are irrelevant in determining control under the Companies Act.

The appellant contested the prayer, arguing that empowering Joint APLs to exercise voting rights on shares not recorded in their names is prohibited by law and claimed that such actions would contravene the Companies Act, specifically Section 47 read with Section 2(55), and could amount to rectification of the share register. The appellants further contended that the impugned order unlawfully directed the plaintiff to implement the majority decision of the APL, which, according to them, is illegal and beyond the Testamentary Court’s jurisdiction. The appellant also challenged the decision of the APLs to reinvestigate the extent of the estate, asserting that it goes beyond their authority and contradicts the unanimous inventory report of 2013.

The appellant also asserted that the impugned order violates principles of natural justice. It was contended that the defendants were allowed to advance new arguments and cite new judgments after the plaintiffs had concluded their submissions, denying the plaintiffs an opportunity to respond.

Moot Point

Issue I — Powers of Probate Court under Section 247, Succession Act

  1. Question of title;

  2. Third party injunction.

Issue II — Extent of PDB Estate

  1. Only shares or ‘controlling interest’;

  2. ‘Controlling interest’ meaning;

  3. Whether the issue of extent of Estate barred by res judicata and/or barred by estoppel against HVL.

Issue III — APL (Administrator Pendente Lite) powers

  1. How far APL can interfere in Company affairs;

  2. Whether APL decisions have to be unanimous, or majority view prevails.

Court’s Assessment

Issue I. i) Whether a testamentary court can conclusively decide issues of title?

The Court observed that the Probate Court, while adjudicating under Section 247, Succession Act, can tentatively decide the extent of the deceased’s Estate. However, this does not constitute a final adjudication of property title. Citing Kanwarjit Singh Dhillon v. Hardyal Singh Dhillon, (2007) 11 SCC 357, Ishwardeo Narain Singh v. Kamta Devi, AIR 1954 SC 280 and Krishna Kumar Birla (Supra), the Court established that probate proceedings are confined to determining the genuineness and due execution of the will, without addressing questions of title. The Court rejected the findings of the Single Bench that delved into the entitlement of the estate to exercise control over tier 3 and 4 companies of the MP Birla Group, emphasizing the limited jurisdiction of Probate Courts.

Issue I. ii) The circumstances under which third-party injunctions can be granted by testamentary courts

The Court observed that the Probate Court can grant third-party injunctions in exceptional cases for the limited purpose of protecting the Estate. However, normal circumstances do not permit interference in the internal affairs of third-party companies. In interpreting Order 39 Rule 1 CPC, the Court referred to Nirod Barani Debi v. Chamatkarini Debi, 1914 SCC Online Cal 30 and Atula Bala Dasi v. Nirupama Devi, AIR 1951 Cal 561 to emphasize the conditions under which injunctions can be granted, clarifying that Probate Courts lack jurisdiction over third parties’ internal matters.

The Court maintained that the Probate Court’s primary concern is the representation of the deceased’s estate, not the adjudication of property title disputes. The court acknowledged the power of the Probate Court to appoint an Administrator Pendente Lite (APL) and issue temporary injunctions. The Court held that third-party companies, not being parties to probate proceedings, are not amenable to the jurisdiction of the probate court, and injunctions cannot be extended to them.

Issue II. i) The composition and nature of the estate of the deceased testatrix — Only shares or ‘controlling interest’

The Court asserted that the powers of the Probate Court in appointing an APL are co-extensive with those of the deceased testatrix. The Court observed that PDB’s personal influence, while significant, is deemed intangible and limited to herself, not constituting a tangible part of her estate.

The Court stated that PDB’s powers in several companies are confined to her ownership of specific shares, as outlined in the affidavit-of-assets. The Court asserted that “Controlling interest” should be distinguished from personal influence, as mere influence does not constitute tangible property or estate.

The Court observed that PDB’s influence in second, third, and fourth-tier companies is considered theoretical, linked to her shareholdings in Tier-1 companies. The Court highlighted that actual participation in voting and decision-making processes is crucial for tangible influence.

The Court noted that the APL, appointed by the Probate Court, steps into the shoes of the deceased but possesses no more rights or powers than the deceased. The Court asserted that the APL could register as a shareholder in companies where PDB held shares, gaining the same rights and powers.

The Court scrutinized the judgments relied on by the respondent and noted that they are interim orders and not final adjudications of the facts. The Court stressed that the determination of the estate’s extent is yet to be finalized and cannot be solely based on interim observations.

The Court opined that the controlling power stems from ownership rights in shares and stocks and the proprietary rights in shares, as per the Companies Act, are crucial for determining controlling interest. The Court held that the exercise of controlling power is regulated by the Companies Act, and any interpretation otherwise is deemed incorrect.

Issue II. ii) The definition of ‘controlling interest’ and its heritability

The Court concluded that the order issued by the Single Bench is inconsistent, particularly regarding the control of companies guided by the APL committee. The Court noted inconsistencies in its findings and highlighted that jurisdiction over companies and the powers of the Joint APLs have not been decisively addressed.

The Court criticised the issuance of directions on how companies should function without determining jurisdiction over them. The Court expressed concern that implementing the Joint APLs’ directions would grant them extensive power, including the direct appointment of Directors, potentially affecting statutory rights of the companies.

While referred to Bacha F. Guzdar v. CIT, AIR 1955 SC 74 decision and emphasising on the separation of company and its shareholders, the Court noted that Probate Court interference with the companies’ assets cannot be permitted. The Court reiterated the limited jurisdiction of the Probate Court to examine the genuineness of a will and refused to pass orders affecting third parties without adjudicating their rights. The Court relied on Rajendra Singh Lodha v. Ajoy Kumar Newar, ILR 2007 2 Cal 377, asserting that the Probate Court cannot supersede the Board of Directors without following due process under the Companies Act.

Issue II. iii) Whether the issue of extent of Estate barred by res judicata and/or barred by estoppel against HVL?

The Court held that the principle of res judicata does not apply to the extent of PDB’s estate, emphasizing that a Company Court or the CLB lacks jurisdiction to decide probate or letters of administration proceedings. The Court stated that the previous orders, including those of the CLB, were deemed not binding on the probate or letters of administration court. The Court reviewed a series of orders, including those appointing APL and addressing the estate’s extent, and concluded that no conclusive finding was reached in any forum.

The Court asserted that HVL is not barred by estoppel from disputing the extent of PDB’s estate, emphasizing HVL’s capacity as a legatee and the distinction between his role and that of RSL as the executor.

The Court clarified that res judicata operates primarily in personam, and decisions in probate proceedings operate in rem, affecting the world at large. The Court also emphasised the Court’s responsibility to independently assess the evidence and adjudicate the extent of the estate, unrestricted by res judicata or estoppel.

Issue III. i) How far APL can interfere in Company affairs?

The Court held that the APL, stepping into the shoes of the deceased testatrix, cannot exercise powers beyond those possessed by PDB during her lifetime. The Court stated that the APL is permitted to register itself or its nominees as owners of specific shares held by PDB, including consequential registration as members of the respective companies.

The Court acknowledged the potential influence of majority shareholding in ‘Tier 1’ companies on decision-making in lower-Tier companies but emphasized the limitations imposed by company law doctrines.

The Court opined that the shareholders are not owners of a company, and their influence is limited to democratic processes like voting and participating in shareholders’ meetings. The Court observed that the testamentary court’s jurisdiction is co-extensive with the estate of the testatrix, and its powers are restricted to asserting those associated with voting rights and essential shareholder rights. The Court further clarified that the testamentary court cannot participate in day-to-day company affairs, and the APL’s role is to protect and preserve the interest of the estate, not to engage in mismanagement or fraudulent transactions.

Issue III. ii) Whether APL decisions have to be unanimous, or majority view prevails?

The Court held that the APL is authorized to make decisions based on majority agreement among its members, ensuring its functionality despite perpetual disagreements. The Court stated that the judicial member acts as an arbiter and directed the APL to strictly adhere to its role as a shareholder with ancillary functions during the pendency of the Letters of Administration suit.

Court’s Decision

The Court concluded that —

  1. The testamentary court may decide the extent of the estate of the deceased prima facie but cannot conclusively decide issues of title.

  2. Third-party injunctions may be granted in exceptional cases to protect the estate, but interference in the internal affairs of companies is generally not allowed.

  3. The estate includes actual shares and powers incidental to ownership, such as voting rights. ‘Controlling interest’ refers to heritable rights emanating from shareholdings, not personal charisma or influence.

  4. The issue of the extent of the estate is not barred by res judicata.

  5. The APL can interfere with internal affairs but is restricted to actions associated with shareholdings, and major decisions require court approval.

  6. The APL’s composition leads to a conflict of interest, and the judicial member should act as an arbiter.

The Court modified the order of the Single Judge, allowing parties to approach the testamentary court for serious doubts. The Court directed that the trial of the Testamentary Suit should resume at the earliest. The matter is disposed of, with the hope for an expeditious resolution of the letters of administration suit.

[Universal Cables Ltd. v. Arvind Kumar Newar, 2023 SCC OnLine Cal 4959, order dated 14-12-2023]

*Judgment by Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya

Know Thy Judge | Justice T.S. Sivagnanam – Chief Justice of Calcutta High Court

Advocates who appeared in this case :

Mr. Darius Khambata, Sr. Adv., Mr. Abhrajit Mitra, Sr. Adv., Mr. Abhratosh Majumder, Sr. Adv., Mr. Kunal Vajani, Mr. Debanjan Mandal, Mr. Sanjiv Kumar Trivedi, Mr. Jishnu Chowdhury, Mr. Subhankar Nag, Mr. Soumya Ray Chowdhury, Mr. Sarvapriya Mukherjee, Mr. Deepan Kumar Sarkar, Mr. Tushar Hathiramani, Mr. Satadeep Bhattacharyya, Mr. Kunal Mimani, Ms. Mahima Cholera, Ms. Iram Hassan, Mr. Sanket Sarawgi, Mr. Karthikey Bhatt, Mr. Rachit Lakhmani, Mr. Subhang Tandon, Mr. Jishnu Chowdhury, Mr. Aritra Basu, Mr. Paritosh Sinha, Mr. Saubhik Chowdhury, Ms. Ayushmita Sinha, Mr. Tirthankar Das, Mr. Ranjan Bachawat, Sr. Adv., Mr. Shaunak Mitra, Mr. Sayan Roy Chowdhury, Mr. Satyaki Mukherjee, Mr. Paritosh Sinha, Mr. Saubhik Chowdhury, Ms. Ayushmita Sinha, Mr. Shyam Divan, Sr. Mr. Ranjan Bachawat, Mr. Shaunak Mitra, Ms. Sanam Tripathi, Ms. Anshula Laroiya, Mr. Paritosh Sinha, Mr. Sayan Roy Chowdhury, Mr. Satyaki Mukherjee, Mr. Saubhik Chowdhury, Ms. Ayushmita Sinha, Mr. Tirthankar Das, Ms. Tapasika Bose, Mr. Ranjan Bachawat, Sr. Adv., Mr. Sayan Roy Chowdhury, Mr. Satyaki Mukherjee, Mr. Jasojeet Mukherjee, Counsel for the Appellants

Mr. S.K. Kapur, Sr. Adv. Mr. Ajay Bhargva, Mr. Anuj Singh, Mr. Akash Bajaj, Mr. Pratik Mukhopadhyay, Counsel for the Respondent 1

Mr. S.N. Mookerjee, Ld. Advocate General, Ms. Vineeta Meharia, Mr. Pratik Mukhopadhyay, Mr. Ajay Bhargava, Ms. Vanita Bhargava, Mr. Trishal Trivedi, Counsel for the Respondent 2

Mr. Ratnanko Banerjee, Sr. Adv., Mr. Debdatta Sen, Mr. Swarnendu Ghosh, Ms. Suchismita Chatterejee Ghosh, Mr. Malay Kumar Seal, Mr. Prasun Ghosh, Counsel for the Respondent 3 and 4

Mr. Surojit Nath Mitra, Sr. Adv., Mr. D.N. Sharma, Mr. Kaushik Chowdhury, Ms. Vaibhavi Pandey, Counsel for the Respondent 5

Mr. C.A. Sundaram, Sr. Adv., Mr. Joy Saha, Sr. Adv., Mr. Sourav Soparkar, Mr. Abhishek Guha, Ms. Rohini Musa, Mr. Rajat Gupta, Mr. Yash Vardhan Deora, Mr. Ishaann Saha, Ms. Akansha Chopra, Counsel for the APL Committee (Majority Members)

Mr. Kishore Dutta, Sr. Adv., Mr. Rajesh Upadhyay, Mr. Mahendra Kr. Sharma, Counsel for the Joint Administrator pendente lite

Mr. Anirban Ray, Ld Government Pleader, Mr. Rajarshi Dutta, Mr. Sankarsan Sarkar, Mr. Shwetaank Nigam, Counsel for the Intervenors

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